Gordon Davidson
Fenwick & West, LLP
Fenwick & West, LLP
Mr. Davidson is the Chairman of Fenwick & West. He advises technology companies, including networking, computer software and electronics companies as well as medical technology companies.
His clients range from start-ups to Fortune 1000 companies, including:
Cisco Systems, Inc.
Electronic Arts, Inc.
Intuit Inc.
Macromedia Inc.
Symantec Corporation
Other clients include Barclays Global Investors, Kleiner Perkins Caufield & Byers, Mohr Davidow Ventures, Morgan Stanley and Sequoia Capital.
Related Links: www.fenwick.com
Last Updated: Mon, Jun 5, 2006
Page: 1
The way in which stock options are valued is going to change. Though many companies have generous stock options, they also pay generous salaries because Silicon Valley is an expensive place to live and engineers need cash. Therefore, there is not a big differential between the salary with stock options and the salary without stock options. The size of stock options is likely to decrease, which means a reduced ownership of the company by employees and therefore a lowered incentive for creativity and innovation.
Early in his career, Gordon was influenced by some of Silicon Valley's great founders. He started out as a mechanical engineering student at Stanford and developed a strong relationship with a professor who challenged his assumptions and forced him to not be satisfied with an incomplete answer.
Entrepreneurs are creative and believe that they can change the world. They also must have drive and perseverance and believe the company is going to succeed, no matter how trying the circumstances. The advice of mentors is also invaluable.
Gordon discusses companies he believes exemplify outstanding drive and perseverance. Apple has tremendous creativity that has paid off with the success of the iPod. Oracle is extremely dedicated to its vision and has surmounted obstacles in order to achieve it. Intuit has a relentless commitment to the customer that has led the company through tough times.
A number of great companies including Oracle, Apple and Google were started by first-time entrepreneurs. Even with great mentoring, how were they so successful without experience? Gordon answers that first-time entrepreneurs are the ones with the passion and drive to build a great company.
Fenwick & West selects clients based on interviews, but also recognizes that a wide range of people can be successful. If a client is intriguing and seems to have promise, F&W help to set them up with venture capitalists. If the project gets funded, F&W invest a number of months' work into the company and they go along for the ride.
Google has decided to IPO though the Dutch auction method, which has never been done for such a large-scale offering. In the Dutch auction method, each buyer makes a blind bid for what they are willing to pay. The seller then finds a clearing price for how many shares they want to sell, and the people with bids above that price are awarded stock. The method is designed to avoid the tremendous first day stock price volatility experienced by newly-public companies.
Gordon caught the startup bug while working for Measurex, but wondered if there was a way he could work for multiple startups at a time, as an advisor for many companies rather than as an executive at just one. He attended law school and Apple was one of his first clients. He deeply regrets not accepting Steve Job's request to pay the $500 legal fees in stock instead of cash!
Do people expect unusual services from a board member who is also a lawyer? Gordon himself does not serve on boards for this reason. He wants to keep a clear role for himself and maintain a straightforward attorney-client relationship. He wants his clients to know that his advice comes from an objective point of view, and not because of an interest from a board seat that he may hold.
Outsourcing is a common trend in the market right now and has been a topic at every board meeting. The economics for outsourcing are compelling, but it is hard to know what the intellectual property protections are like. Though copyright and patent protection exists in theory, it is still difficult to ensure protection overseas.
Scott Cook and Tom Proulx of Intuit approached Gordon for advice on what venture capital to accept. Gordon recommended they accept the funding based on the two lowest valuations for the company because the offers came from John Doerr and Burt McMurty, two of the best venture capitalists in the business. Even at the lower valuation, Gordon predicted that the leadership from these two men would more than make up for the lost profits in the long run.
In addition to handling the legal work, lawyers help companies get off the ground by making introductions for founders of start-ups to potential investors, mentors, and accountants. They also help negotiate licenses, execute customer contracts, public offerings, and mergers, sit in on board meetings, and give advice.
Gordon describes the idea of bullet train thinking. You assume you want a train that can travel at ten times the speed of a conventional train and then figure out what would have to be possible in order to make it work. With this assumed result, you must think of creative solutions that otherwise would not likely be considered. In a startup, when you only have two months left of money, you find a solution in those two months because it is the only option.
Gordon recommends that everyone understand the basics of stock, financings, intellectual property protection, and the necessary ecosystem to launch a company. He also suggests having role models and understanding the mentality and infrastructure that makes Silicon Valley so conducive to startups.
Gordon questions whether the Dutch auction system is ever appropriate for stock, since it was developed for tulips, of which there is a finite quantity. He worries that people will artificially inflate their bids if they know that the company is planning on giving each bidder only a percentage of what they ask. He also speculates that the institutional investors may not bid, but will wait until the market settles. Whatever the case, there is not yet enough data to convincingly predict when a Dutch auction will be successful.